Three Ways Electronic Components Manufacturers Can Profitably Manage Rising Costs

As costs continue to rise and supply shortages persist, dynamic pricing is now a requirement for electronic components manufacturers. Here are three ways to make dynamic pricing a reality in this industry.

Dynamic Pricing Can Manage Dramatic Cost Increases 

The semiconductor shortage in the global market has reached crisis levels, pushing lead times up to nearly a year. Indeed, ripple effects have been felt throughout the consumer electronics, automotive, aerospace and many other industries that increasingly depend on chips. However, the trouble doesn’t end at microchips and semiconductors. A look deeper into the value chain reveals more shortages that are creating fewer headlines, but just as many headaches for electronic components manufacturers. Many of the raw materials that go into electronic components have been in short supply due to mining labor shortages caused by the pandemic. 

The combination of short supply and rising cost for materials like petroleum, copper, silicon, cobalt, gold, and many others have led electronic components manufacturers to raise their prices by 5% to 200% depending on the product. 

With prices on the rise throughout the value chain, the time to act is now. As EPSNews puts it: 

“Electronics prices are on track to rise this year – and it may not be until late 2023 before prices begin to fall. Manufacturers can prepare now to manage upcoming electronics price increases, continuing shortages and longer-than-average lead times on important electronic components and raw materials.” 

But these manufacturers must ask themselves, “Are we equipped with the tools that will help us prepare now with the decisiveness and precision required?” Most risk margin loss when they play the cost pass-through game with outdated tools. When costs need to be passed through and prices need to be raised at such a rapid pace, there is no room for guesswork or manual calculation. Additionally, when costs eventually decline, manufacturers must carefully parachute prices down in order to preserve margins while remaining competitive. These intricate, yet accelerated, price moves require dynamic pricing software. 

Why is Dynamic Pricing Required for Electronic Components Manufacturers? 

Research firm Global Data found that “more tech companies mentioned ‘pricing’ during their Q1 earnings calls than any other sector… discussions about pricing grew by more than 65 percent compared with the same quarter last year.” 

This is because not only are raw materials and chips in high-demand/short-supply, but the cost to move these goods around the world has greatly increased. When cost becomes the dominant pricing trigger, meaning an event that necessitates a price change, prices must follow, of course. But at a strategic level, the pricing response to ballooning costs also represents the biggest opportunity for businesses to take control of a seemingly out-of-control situation. Hence, it’s at the tip of everyone’s tongue, all the way up to the boardroom. 

Yet when these strategic pricing discussions take place and decisions are made at the highest levels, the cruel reality of outdated systems often stops any forward momentum. Most enterprises are still fighting 21st century battles with 20th century tools – spreadsheets and inflexible pricing systems of record. 

These systems are not designed for the volume or speed of the digital economy, especially not in times of inflationary pressure. Cutting-edge electronic components manufacturers are adopting modern pricing approaches and tools because they allow them to execute the following three strategies to thrive through inflation and beyond. 

Read more: What is Dynamic Pricing? 

Three Ways Electronic Components Manufacturers Can Beat Rising Costs